Prices, Inflation/Deflation, Interest Rates & The Fed

NoMoreTO

Ostrich
Are your savings safe in your bank account? Waiting for prices to drop on certain items in the next while, or is now the time to get in?

A separate Thread for trying to determine whether we are heading into a deflationary or inflationary environment. We can also use this thread to track price changes in specific goods/services. I believe deflation and inflation will occur at the same time dependant on products, but that inflation will be what is coming in the next 5 - 10 years.

Inflation
Inflation article for quote below
With gold prices surpassing $2,000/oz recently, the monetary metal has now made new all-time highs versus all the world’s major fiat currencies. Gold is, as former Federal Reserve chairman Alan Greenspan has acknowledged, the “ultimate money.”
...
On Tuesday, the yield on the 10-year Treasury note fell to a record-low 0.52%.
...
Inflationary episodes like we saw the late 1970s – and like we’ve been seeing over the past four months – are characterized by extreme volatility amid dollar insecurity. Holders of Federal Reserve Note dollars and dollar-denominated real negative-yielding IOUs are like sheep lining up to get slaughtered through purchasing power losses.


Deflation
There certainly seems to be some opportunity to buy when there is "Blood in the streets" , which sadly we are seeing more and more of, but I'm not seeing the price drop yet.
Inflation Deflation Article
This story below from Japan hits home, and seems to match our current situation. Who is really buying in all this mess?
Falling wages led to a decrease in demand, which led to lower prices. Lower prices led to the expectation that prices would continue to decline, so consumers held off on making purchases. Lack of demand caused prices to fall further and the downward spiral continued. Combine that with interest rates that hovered near zero and a depreciating yen,56 and economic expansion coming to a screeching halt.

I'm currently sitting with the August version of the uneducated economist, even though it seems like he's changed his mind since March above. Interesting little recent video about inflation. I've had this feeling recently that it would be better for me to buy certain things I'd like now rather than wait until later when money inflates and prices rise.
 
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Laner

Hummingbird
Gold Member
Inflation

Beef: I am hearing steer could go for $1800 this fall. My little cousin has sold his already for $1300 even though its still a few months from auction. Store beef is up about 15%, down from the covid high of 30%. Corporate slaughterhouses jacked their rates while the ranchers still got the same $/lb.

Stainless Steel Fasteners: I just paid about 40% more than I did last year on a re stock. Brutal shock on that one.

Stainless Steel Tubing: I was lucky to find some. It's taken 2 weeks and only half my order showed up. Costs are up about 20%.

Honestly it feels like everything is more expensive. My local pub is $8 a pint, up from $6.80 before covid. I am also only buying Canada/US products if I can, so there is the extra cost of that. Some things are pretty competitive, like rubber boots/work boots/gloves. Other things, like a good shovel, I paid $60 instead of $30 for the Chinese tin.

Inflation is going to help my business to some degree though. I pass on the cost, and already I feel my prices are being accepted with not much push back. So I think everyone is feeling it.

I am concerned over food still, though.

Deflation

I live in Vancouver. So sweet fuck all besides interest rates. And all that has done is driven up home prices again. Fuel is back at $1.35/L from its low of $0.80 during covid. Slightly down from its high last winter of $1.85.
 

Tactician

Kingfisher
Gold Member
Inflation is already here, especially in the markets, but not everyone has noticed it just yet. It'll become apparent soon & you'll start to hear a lot more talk about it. Not hyperinflation or anything crazy, but definitely everything higher by 10-20% if I had to guess.

Here's a quick article that covers Fed liquidity: https://macro-ops.com/monday-dirty-dozen-chart-pack-18/
The Dollar currency index was beat up pretty badly, falling ~7% over the last 3 months.
M2 money supply exploded: http://www.shadowstats.com/alternate_data/money-supply-charts

That's the inflation side of things. I think a deflation comes later.

I'm not a perma-bear, but I think this all ends really badly and some form of UBI gets rolled out. In effect, this was a trial run. At any rate, a ton of purchasing power is going to get destroyed & the middle class will feel the worst of it.

Govts are pumping money, but at the end of the day, a ton of people are out of a job, & a ton of behaviours changed towards spending less. Even if everything fully opens up, some low % of people won't go back to normal either due to fear or sticking with an improvisation, e.g. cutting their own hair. These margin changes in customer behaviour are going to put a ton of pressure on small business at a time when big business is already trending to take over, e.g. Amazon, or Nasdaq 100 vs the S&P. Either way a ton of purchasing power is going to be eroded. If govts stick with printing money, then more erosion thru inflation, and when they likely turn the printing off, then a ton of people are going to struggling due to debt + their asset prices taking a dive.

It sucks for brick & mortar small business the most as they have loans, overhead, & it's hard to pivot easily. On my end, I'm going out more, but regulations are annoying & I pass on some activities that have too many weird rules. It's just like when you click on one of those websites & it takes a long time to load so you say, "eh, not worth it" and click away. That's gonna be a lot of small business unfortunately :/

So I think it goes inflation first --> deflation, but even if a UBI is rolled out & inflation tapers to a normal ~2% level, most people will see a big hit to their autonomy & purchasing power, & the average person will be more reliant on govt & corporations than before. :(

Edit: p.s. I like those Uneducated Economist vids. Started watching a few after you posted them in the Stock market crash thread. He's a bit of a perma-bear, but has a good take on things + he's usually chilling by the ocean & the scenery is relaxing.
 

gework

Ostrich
Gold Member
On bank accounts. I am hearing sounds and feeling them that there is a big push to get people more compliant. Seems like they are getting people into straight jackets in their bank accounts. I am leaning more and more into getting into more into crypto, as the hurdles of legacy banking are so great and I am not overly confident in my ownership of the holdings.

Developed countries are seeing a lot of deflationary pressures:

- people living longer and holding onto (often aggressively zoned) properties
- increasing retirees liquidating stocks to fund retirement
- selling stocks (coming) and sitting on cash

But The Fed will do what it can to avoid this by printing more.

I don't think it's likely there will be major inflation or deflation until the dollar takes a major dive as world reserve currency, and that is not likely to happen so. The only current alternative is CNY, which few people will trust.

total market cap / gdp is probably heading to 200%. Right now I want cash and crypto. But the crypto likely needs to be sold when this pops.

 

EndlessGravity

Woodpecker
To disabuse yourself of the belief that inflation is on the way, simply look at the failure to achieve it for the decade after 2008. The same things were said then as now.

Prices for certain items will go up due to stagflation and de-globalization. We planned in March for double meat, diary, egg prices in our budget. We may see asset prices stay the same if they can keep the games going on, such as no evictions and deferred mortgages. I'm skeptical they can.

Gold may continue up but not for fear of inflation. Bonds going negative means zero growth and massive deflation as people pile into them due to a shortage of other, usable collateral.

They're going to destroy the reserve currency status in the 2020s to keep us afloat until we are merely a regional power, which militarily, is nearly there anyway.
 

Arado

Pelican
Gold Member
To disabuse yourself of the belief that inflation is on the way, simply look at the failure to achieve it for the decade after 2008. The same things were said then as now.

Prices for certain items will go up due to stagflation and de-globalization. We planned in March for double meat, diary, egg prices in our budget. We may see asset prices stay the same if they can keep the games going on, such as no evictions and deferred mortgages. I'm skeptical they can.

Gold may continue up but not for fear of inflation. Bonds going negative means zero growth and massive deflation as people pile into them due to a shortage of other, usable collateral.

They're going to destroy the reserve currency status in the 2020s to keep us afloat until we are merely a regional power, which militarily, is nearly there anyway.
Fundamental difference is that from 2008 till now, most of the money printing stayed with the banks in the excess reserves parked at the Fed - never got released into the economy. This time, you have the Fed directly monetizing record levels of government deficits, which throughout all of history eventually leads to inflation because this printed money is being directly injected into the economy via government spending.

PLUS you have unbelievable amounts of supply destruction due to closures, and ongoing lower productivity because people are being paid more to stay home than go to work.

PLUS you have supply chain disruption due to the trade war with China and other travel restrictions.

Not to mention according to shadowstats.com inflation has been way understated. The BLS tries to pretend that cheaper gadgets makes up for ever-crappier and pricey food, expensive housing, skyrocketing healthcare and education costs over the last decade.
 

Arado

Pelican
Gold Member
I wrote this back in May and it still largely applies - the deflationists still say that despite the recent printing, it's only solved the liquidity rather than insolvency problems. Inflationists point to the printing and lower dollar and rising gold.

I'm far past the point of getting angry at the Fed. There's no point in worrying about bankster corruption and moral hazard. You have to just take a cool calm perspective and structure your portfolio in proportion to the probabilities of the most likely scenario. That doesn't mean not accounting for the growing chance that this whole thing may still come crashing down.

It's an active debate between the inflationists and the deflationists. There are some really smart people like Luke Gromen and Lynn Alden (and not just goldbugs like Peter Schiff) who are in the inflationist camp - they think that the Fed is going to do whatever it take to prevent deflation, prop up asset prices, and relieve dollar shortages abroad. While they acknowledge that there's likely to be a scramble for dollars once the economic damage and debt overhang becomes clear, there's just too much political pressure for the Fed to let the bad debt go bankrupt and will likely monetize it and keep funding huge deficits and bailouts, especially in an election year. Print first and ask questions later.

The deflationists say that there is simply too much debt in the system and money velocity will remain too low in the near future, and low/negative interest rates exacerbate it because it forces baby boomers to save even more. There is too much debt that will have to be defaulted on, especially outside the US (dollar milkshake theory), and will lower the money supply. No one is spending money - everyone who can is saving and paying down debt, so how can prices go out of control?

Not to mention that we're seeing huge disconnects in different industries - price inflation in food and consumer staples and PPE equipment while cruise tickets and used cars are on sale. As Tail Gunner mentioned above, inflation/deflation manifests differently in different sectors.

Telemedicine/online learning and AI may actually bring down costs in healthcare and education if disrupters were allowed to smash the status quo, and these sectors had the highest inflation in the last decade due to corruption/collusion and government interference (regs on insurance companies, subsidizing elderly/obese medical care, brainwashing students that college was necessary and subsidizing their loans). So not everything is a monetary phenomenon.

Urban penthouses may go on sale while cabins in the woods and farmland get multiple bids. So while this inflation/deflation debate is playing out we'll have some industries going bankrupt while others are capitalizing.

Both sides have valid arguments and the question is will there be sufficient warning and lead time before the dollar collapse to reposition your portfolio into fixed rate debt and precious metals just right before debt monetization starts? If you wait in cash now will you still be able to get physical precious metals and a 30 year low fixed rate mortgage at that point? Or, by going all in on the inflation argument are you giving up the opportunity to buy some quality assets on the cheap in the next few years? Should overvalued large cap equities still be a core component of an inflation hedge strategy?

What if gold rises during deflation alongside a rising dollar? What role does bitcoin play in all this?

Curious to hear comments.
 

EndlessGravity

Woodpecker
Fundamental difference is that from 2008 till now, most of the money printing stayed with the banks in the excess reserves parked at the Fed - never got released into the economy. This time, you have the Fed directly monetizing record levels of government deficits, which throughout all of history eventually leads to inflation because this printed money is being directly injected into the economy via government spending.
Very true. However, the hole they're trying to fill is much larger in 2020. Frighteningly large. IMHO, un-fillable given what we're seeing in the system. Those deficits are trying to stop money destruction on a level that's no longer comprehensible. They can't inject it as fast as it is being and will be destroyed.

Take a look at the US bond auctions. They can't get enough of them in the system to meet the demand. That's a dollar shortage in action, not a dollar glut.

We agree that some prices will go up and continue to do so. However, we're watching the biggest margin call in all of human history. Like I said, they'll sacrifice the dollar and I now believe what Vox says: we have, at best, 10 years left now.
 

NoMoreTO

Ostrich
An interesting take on Stimulus - it doesn't work on aging populations. When I think about this it is true, the old with money usually just sit in their house. Also, we are also likely to see alot of pain for pensioners on fixed incomes. This is why I have always believed that owning my little rental property I believe is a better retirement egg, it will always pay to the market, and will be relatively hedged against inflation or government BS. Plus the alternative of living there.

The fed wants the government stimulus though, they don't really want to lower rates anymore as it doesn't seem to be a good thing to go below the 0 bound (negative interest rates).

 

NoMoreTO

Ostrich
FEDNOW digital reserve currency. Digital Currency is on its way. AND FAST.

On Thursday, the Federal Reserve unveiled new details about FedNow Service—a new real-time payments platform that would enable financial institutions in the U.S. to clear and settle transactions in virtually instantaneous fashion.
https://fortune.com/2020/08/09/fednow-real-time-digital-payments-the-fed/

Most of the letters from individuals, 2,246, argued the Federal Reserve should not operate in competition with the private sector and viewed the decision to implement FedNow as an expansion that is inconsistent with its historical purpose
https://www.pymnts.com/news/b2b-payments/2020/fed-moves-ahead-with-fednow-despite-objections/


 
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NoMoreTO

Ostrich
Yes, and it seems they want to move to 2% average and not 2% target, which is strange.

Inflation is way higher than the posted number, they exclude so much that their number they use is useless.
 

Arado

Pelican
Gold Member
Very true. However, the hole they're trying to fill is much larger in 2020. Frighteningly large. IMHO, un-fillable given what we're seeing in the system. Those deficits are trying to stop money destruction on a level that's no longer comprehensible. They can't inject it as fast as it is being and will be destroyed.

Take a look at the US bond auctions. They can't get enough of them in the system to meet the demand. That's a dollar shortage in action, not a dollar glut.

We agree that some prices will go up and continue to do so. However, we're watching the biggest margin call in all of human history. Like I said, they'll sacrifice the dollar and I now believe what Vox says: we have, at best, 10 years left now.
I totally agree with you on the insane levels of debt out there and some extremely smart folks like Brent Johnson and Raoul Pal are on your side. However, it's very likely that the Fed will find new ways to get money into the real economy to inflate this debt away before too much pain hits. In the meantime there are already rumblings that the demand for long-dated debt may hit a limit eventually and the Fed will have to monetize outright.
After the stellar, record-sized 3Y and 10Y auctions earlier this week, moments ago the Treasury concluded refunding week with another record auction, this time in the form of an all time high $26BN in 30Y bonds.

Overall, this was a very ugly auction, and due to the record auction size, or due to today's massive Apple concurrent issuance or just because of rising reflation fears, whatever the reason the curve quickly repriced sharply wider, and as the 30Y yield spiked to a level from early July, the 10Y yield has pushed above 0.70%.
This could be a one-off, but at some point institutions and retail and foreign central banks will lose interest in holding US treasuries with a negative real yield.

Great interview with Lacy Hunt here on the Grant Williams podcast, he's still in the deflation camp but he acknowledges that once the "Fed's liabilities become legal tender" then that will unleash inflation on the economy. We are getting very close.


I also really liked this interview where some folks discuss how they are hedging for inflation and deflation. They all expressed bewilderment at how the macro backdrop is highly deflationary but with the unprecedented money printing, as well as stimulus and eviction moratoriums it's holding things up for now.

Eventually things will break in one direction or the other - either the Fed steps back and massive deleveraging, or people lose faith in the currency and inflation mindset takes hold.
 

NoMoreTO

Ostrich
The use of credit for consumption gives a false impression of wealth and growth. When the plug is pulled on the credit, consumer spending drops off.

It made me think about how we feel wealthier today but aren't. We have bigger houses perhaps, but bigger mortgages too. Some guys dad drove an old pickup truck he bought with cash in the bank, but his son has a big beautiful jacked up Truck on a 7 year finance.

Interesting little video about a lady who hits the end of her credit cards. What happens when Credit card limits are reduced or people hit their limits?
 

gework

Ostrich
Gold Member
Going forward banning usury needs to be on the agenda.

There was a big injection of debt into developed economies around the millennium, which followed later in developing countries. It was private and corporate debt. When that ended in 2008, governments moved in to fill the gap. Economic growth fails when that debt can't be sustained. The US government, alone, accrues about as much debt each year as all economic growth.

On top of this increasing numbers of people are selling their future for the present. The current order increasingly requires a steady stream of people who were born and educated elsewhere; who will sacrifice property ownership, family and a pension; and for whom there is little to no hope of any meaningful state pension.

The current system, which is globalism + social democracy, is going to fail. They seem to be aware of this. And due to a number of reasons there is little possibility of rebooting it to growth. They want to reboot it to peonage under the pretense of saving the planet. But I don't think that will wash well. Society is wholly materialistic and consumeristic. When growth fails, the majority have nothing else to fall back on.
 

NoMoreTO

Ostrich
Great points above. It is really sad what is going on today. Budoslavic dishing out the black pills from Reddit.

Re: Pensions > So many people have put their faith in pensions based on some solid results for pensioners over the last 30 years. Problem is, when the money inflates, your pensioned income in terms of real spending ability falls off the cliff.

Re: Private Citizen Ownership > Things are only going to get worse. Small business will fail en masse, restaurants, mom and pop shops. Corporations will scoop up this asset class. Along with restaurants, Farm land is an example of an asset class which should be widely owned by the people, but increasingly hedge funds are moving onto our farmland buying up massive swaths. The rush for gold and silver as stores of value, translates to farm land also.

Usury must end. The creditors can take a haircut, or they will when the defaults come or they receive a coupon that after inflation is a fraction of a % in terms of a real return.

I wonder what will come next, It seems to me the globalists will move us into socialism GEwork mentions. I'd rather see the great default and let the people sort it out. It will eventually happen as Logos rises, but I think we will be living in some seriously socialist times and the private owners will manage to take things back over time - I hope. Unless the full beast system comes online, which is what they will need to raise this dead lazarus ecoonomy.

I've been thinking more about this coming situation, instead of the riots which are equally insane. Re listened to an EMJ interview on barren metal.

EMJ Barren Metal Bitchute
 
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EndlessGravity

Woodpecker
From January 23, 2020...
I've been thinking more about this coming situation, instead of the riots which are equally insane. Re listened to an EMJ interview on barren metal.
I disagree with some of the points but a good write-up. People are clueless to how totally screwed we are economically, not next decade...right this second. This has been on my mind most because it will affect you.

We stopped planning for social security or 401k funds, after 2008. This is also why we've cancelled our Amazon, Walmart, etc accounts. It's difficult to tell how the future will look but it will either be total control or escape to a safer region.

Edit: worth repeating...save cash, stack gold, get property.
 
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